Dynamic currency conversion: What it is and why you should avoid it
Editor's Note
You’re visiting another country and making a purchase with your credit card. Then, the credit card terminal asks if you’d like to pay in U.S. dollars or in the local currency.
This might sound like a convenient way to avoid foreign transaction fees, but it’s not. Here’s why: The exchange rate offered here ranges from bad to awful, and you may still pay a foreign transaction fee (if your credit card has one) since some credit card issuers base these fees on where the transaction takes place — not the currency you chose for your transaction.
This option for paying in your home currency is called dynamic currency conversion, and it can lead to hefty fees plus overpaying for your purchases. Here’s how to avoid dynamic currency conversion.
How dynamic currency conversion works
Dynamic currency conversion, aka DCC, is sometimes called “cardholder preferred currency” or CPC. Whichever name you use, the idea is the same: cardholders can pay in their home or local currency when using a credit or debit card while visiting another country.
When you present your card to pay, the payment terminal may display two options: a price in the local currency and a different price in your home currency.
The price in your home currency has been converted automatically due to DCC. Unfortunately, these rates are not ideal. DCC pricing typically includes fees and profit margins for the merchant because it provides this currency exchange service.
Conversely, if you pay in the local currency, your bank will convert the charge at the most favorable conversion rates for you, billing you in your home currency — U.S. dollars, in this case. This is the one you should choose.
In short, it works similarly to currency exchange booths. You get the convenience of paying in your home currency, and they make a profit through not-perfect exchange rates. Think of DCC as an exchange fee.
DCC service providers are supposed to notify you that fees and markups are involved (such as this sample advice for merchants). Unfortunately, this isn’t always the case.
DCC works the same with credit and debit card payments as it does when taking money out of an ATM. In most cases, you’ll lose 3%-5% during the conversion. And, if your card has a foreign transaction fee or foreign ATM fee, you’ll stand to lose another 3%-5% from that fee, as well.
Related: I fell for dynamic currency conversion — reader mistake story
How to avoid dynamic currency conversion
Avoiding DCC is simple enough: choose to pay in the local currency. While this can make you apprehensive, as you may feel unsure exactly how much you’re paying, there are better solutions than overpaying for your items in the name of convenience.
When it’s time to pay, you can use a currency conversion app on your phone to see the cost of your items in your home currency. In this way, you can clearly understand the price without accepting DCC.
Other ways to avoid fees
Dynamic currency conversion is just one of the myriad fees you can encounter when using your credit cards. It’s important to avoid as many of them as possible.
Be sure to use a credit card without foreign transaction fees when traveling outside the U.S. You don’t want to pay an extra 3% (typical fee) on top of the price for each purchase.
Similarly, use a checking account that doesn’t assess fees for taking money out of a foreign ATM — or any ATM, for that matter.
Lastly, when you get home, pay off everything you purchased during your trip. Paying your credit card bills in full helps you avoid interest and is better for your credit score. Not doing so makes everything you bought on your trip more expensive.
Related: How to choose a no-foreign-transaction-fee credit card
Bottom line
Convenience is great. In many aspects of life, we’re willing to pay extra for it: having your food delivered (instead of picking it up), faster delivery of items you ordered online, etc.
However, paying extra for items because you see the price in your home currency isn’t worth it. Using an app to show you the price, then paying in the local currency, can lead to big savings. Don’t fall for dynamic currency conversion, which is nothing but an unnecessary fee disguised as “convenience.”
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- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
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Rewards Rate
| 4X | Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 4X | Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year. |
| 3X | Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com. |
| 2X | Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com. |
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You may be eligible for as high as 100,000 Membership Rewards® Points after spending $6,000 in eligible purchases on your new Card in your first 6 months of Membership. Welcome offers vary and you may not be eligible for an offer.As High As 100,000 points. Find Out Your Offer.Annual Fee
$325Recommended Credit
Credit ranges are a variation of FICO® Score 8, one of many types of credit scores lenders may use when considering your credit card application.Excellent to Good
Why We Chose It
There’s a lot to love about the Amex Gold. It’s a fan favorite thanks to its fantastic bonus-earning rates at restaurants worldwide and at U.S. supermarkets. If you’re hitting the skies soon, you’ll also earn bonus Membership Rewards points on travel. Paired with up to $120 in Uber Cash annually (for U.S. Uber rides or Uber Eats orders, card must be added to Uber app and you can redeem with any Amex card), up to $120 in annual dining statement credits to be used with eligible partners, an up to $84 Dunkin’ credit each year at U.S. Dunkin Donuts and an up to $100 Resy credit annually, there’s no reason that foodies shouldn’t add the Amex Gold to their wallet. These benefits alone are worth more than $400, which offsets the $325 annual fee on the Amex Gold card. Enrollment is required for select benefits. (Partner offer)Pros
- 4 points per dollar spent on dining at restaurants worldwide and U.S. supermarkets (on the first $50,000 in purchases per calendar year; then 1 point per dollar spent thereafter and $25,000 in purchases per calendar year; then 1 point per dollar spent thereafter, respectively)
- 3 points per dollar spent on flights booked directly with the airline or with amextravel.com
- Packed with credits foodies will enjoy
- Solid welcome bonus
Cons
- Not as useful for those living outside the U.S.
- Some may have trouble using Uber and other dining credits
- You may be eligible for as high as 100,000 Membership Rewards® Points after you spend $6,000 in eligible purchases on your new Card in your first 6 months of Card Membership. Welcome offers vary and you may not be eligible for an offer. Apply to know if you’re approved and find out your exact welcome offer amount – all with no credit score impact. If you’re approved and choose to accept the Card, your score may be impacted.
- Earn 4X Membership Rewards® points per dollar spent on purchases at restaurants worldwide, on up to $50,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 4X Membership Rewards® points per dollar spent at US supermarkets, on up to $25,000 in purchases per calendar year, then 1X points for the rest of the year.
- Earn 3X Membership Rewards® points per dollar spent on flights booked directly with airlines or on AmexTravel.com.
- Earn 2X Membership Rewards® points per dollar spent on prepaid hotels and other eligible purchases booked on AmexTravel.com.
- Earn 1X Membership Rewards® point per dollar spent on all other eligible purchases.
- $120 Uber Cash on Gold: Add your Gold Card to your Uber account and get $10 in Uber Cash each month to use on orders and rides in the U.S. when you select an American Express Card for your transaction. That’s up to $120 Uber Cash annually. Plus, after using your Uber Cash, use your Card to earn 4X Membership Rewards® points for Uber Eats purchases made with restaurants or U.S. supermarkets. Point caps and terms apply.
- $84 Dunkin' Credit: With the $84 Dunkin' Credit, you can earn up to $7 in monthly statement credits after you enroll and pay with the American Express® Gold Card at U.S. Dunkin' locations. Enrollment is required to receive this benefit.
- $100 Resy Credit: Get up to $100 in statement credits each calendar year after you pay with the American Express® Gold Card to dine at U.S. Resy restaurants or make other eligible Resy purchases. That's up to $50 in statement credits semi-annually. Enrollment required.
- $120 Dining Credit: Satisfy your cravings, sweet or savory, with the $120 Dining Credit. Earn up to $10 in statement credits monthly when you pay with the American Express® Gold Card at Grubhub, The Cheesecake Factory, Goldbelly, Wine.com, and Five Guys. Enrollment required.
- Explore over 1,000 upscale hotels worldwide with The Hotel Collection and receive a $100 credit towards eligible charges* with every booking of two nights or more through AmexTravel.com. *Eligible charges vary by property.
- No Foreign Transaction Fees.
- Annual Fee is $325.
- Terms Apply.